Financial market research and analysis

Since the USDTRY broke down the wedge pattern end-September, it has sustainably retraced to 2.9705, the minor Fibonacci 23.6% level from the top of July-September rise, then to 2.9057, the major 38.2% level.

The US dollar lost past 2.90 against the lira as the Fed minutes witnessed nothing else than confusion apropos the timing of the first rate hike. From a technical perspective, the USDTRY is at a critical junction. The pair will step into a bear market for a significant break below the 38.2% retracement level, 2.9050, or rebound aiming fresh all-time highs, through a fresh impulsive rise. The extension signals potential for a rise to 3.15 before 3.30 to the end of the year.

Beyond the technical picture, lira traders should be well aware of rising political risks in Turkey walking into Nov 1st snap election. While the Fed dovishness buys time for Turkey’s central bank, the monetary conditions in Turkey need to be adjusted higher to meet the rising risk premium. Dearth of transparency will likely continue weighing on the lira and give a bearish bias to the future outlook.

Finally, the BIST 100 stocks had an excellent week on the back of lira appreciation. Turkish companies, known to carry significant size of foreign debt in their balance sheets, did take a breather this week. The positive correlation between the lira and the Turkish stocks took the BIST 100 a bit shy of 80000 mark. Should the lira retrace gains against the US dollar from the critical 2.9050 technical mark, the BIST could fall back to 77000/75500 zone (Fib 50% and 38.2% on July-September drop).